While the political deadlock continues, the two leaders met to negotiate the debt ceiling issue as the deadline for the debt default nears.
As the debt ceiling deadline of June 1 looms over the US, President Joe Biden and House of Representatives Speaker Kevin McCarthy held talks over the current debt ceiling crisis. The talks between the two on Tuesday were the first since they met on February 1. After about an hour of talks in the oval office, the two sides committed to further discussion daily; however, no conclusive result was reached. The meeting was also attended by Hakeem Jeffries, Chuck Schumer, and Mitch McConnell, important congressional members.
Political deadlock
President Biden said the talks were productive and contained possible compromises for the Republicans. However, he has repeated that they must remove the threat of default away from discussions. Additionally, he has not ruled out invoking the 14th constitutional amendment to raise the debt ceiling.
Section four of the 14th Amendment says that the “validity of the public debt of the United States… shall not be questioned.”. The President could invoke this clause to declare the debt limit unconstitutional. Doing so would require litigation, and the case would be in fairly uncharted legal waters; however, it is an option that Biden has said he would study in the future.
Speaker McCarthy has said, after the meeting, that he sees no difference in Biden’s statements. Addressing reporters outside the White House after the meeting, McCarthy said this was not the way to govern and emphasized the lack of substantial progress.
What is the Debt ceiling and its current crisis?
The United States debt ceiling is a legislative limit that regulates how much debt the US Treasury can incur. It was introduced in 1917 when Congress gave the treasury the right to issue bonds to finance America’s war efforts during World War 1. Later in 1939, congress gave the treasury the right to issue and manage debt; however, the amount of debt was to be limited by the Congress members.
Since 1939 till 2018 the debt limit has been increased 98 times and decreased 5 times.
On January 19, 2023, the US hit its debt ceiling of USD 31.4 trillion. The current crisis has emerged due to a political deadlock between the Democrats and Republicans regarding a raise in the debt ceiling. Republican Speaker McCarthy has asked for a reduction in federal spending by making cuts to social security and government health initiatives in exchange for increasing the debt ceiling. However, President Biden has refused, stating that the debt ceiling must be raised without strings attached.
The potential impact of the crisis
Earlier in the week, US Treasury Secretary Janet Yellen had said that failure to raise or suspend debt would lead to a constitutional crisis and a catastrophe entirely of the government’s own making.
The last time such a crisis occurred was in 2011, during Barack Obama’s government. At the time, an agreement was reached two days before the deadline; however, this massive delay caused the most volatile week for the US stock market since the 2008 crisis and caused a downgrade in the creditworthiness rating of the United States for the first and only time.
If the political deadlock persists and the debt ceiling is not raised, the US may default on its bills for the first time. This would lead to a downgrade in credit ratings, increased interest rates, increased borrowing costs for businesses, and a sharp drop in consumer confidence that could lead to a recession. According to the think tank Third Way, a breach could lead to a loss of three million jobs and raise interest rates causing the national debt to go up by USD 850 billion.
Biden and McCarthy are expected to meet again on Friday.
